How does a Gold Futures Contract Work?

How does a Gold Futures Contract Work?

Gold futures are fairly easy for beginner traders and investors to understand. For example: If a trader or investor has US$10,000 and believes that the price of gold will rise over the next three months, he or she has two options. The trader or investor can buy US$10,000 worth of physical gold and sell it when the price moves up for a small profit or he or she can buy US$10,000 of a gold futures contract, which could be the equivalent of buying US$100,000 in gold, and make a substantial profit if the price of gold moves up.

 

On the other hand and if the price of gold goes down, the trader or investor who bought US$10,000 in gold will only lose a small amount of his or her investment but the trader or investor who bought US$10,000 in gold futures could lose the entire amount of their initial investment if the price of gold decreases substantially.

 

To learn more about gold futures and futures in general, check out the CME Group’s Gold Education page as well as the homepage of Futures magazine, a US-based monthly magazine about commodity futures contracts, stocks, options, derivatives and Forex.

 

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